For nearly the past decade, I have been speaking, writing, and advising businesses about the lack of transparency, excessive and unnecessary fees, and conflicts of interest in the retirement plan industry.  For a litany of reasons I have explained, the industry does not operate anywhere close to a free and competitive market, and as a result, retirement plan service providers have continually had participants and employers at their mercy.  Finally, however, a new provider has emerged that empowers participants and employers and exposes the industry’s inefficiencies.

This new provider is called Guideline, and it has an interesting story.  The founder Kevin Busque had previously co-founded TaskRabbit, an online and mobile marketplace that matches freelance labor with local demand, allowing consumers to find immediate help with everyday tasks, including cleaning, moving, delivery and handyman work.  Having trouble finding a high quality affordable retirement plan for his employees, he did what any successful entrepreneur would do to solve a problem.  He started his own company.

Guideline provides seamless payroll integration, record keeping, 3(16) administration fiduciary, and 3(38) investment fiduciary services where they streamline the compliance and fund selection process to the point where employers don’t even have to sign the 5500 form, send out participant notices, manage vesting, eligibility, or loan policies, or approve distributions and hardship withdrawals, and participants can simply choose a customized portfolio consisting of low cost index funds based on their answers to a few questions.

Guideline also allows for companies to choose eligibility requirements, performs profit sharing calculations, provides vesting options, and includes robo-advising and participation and savings rate boosting communications.  In addition, Guideline offers full phone, email, and chat support as well as educational drip campaigns to employees who have opted out to encourage participation and provides a full library of articles that cover any 401(k) based question an employee would have that can be accessed at success.guideline.com.

Guideline uses Benefit Trust Company as a custodian who charges 0.03% of plan assets, which they do not pass on to participants.  Their only ongoing fees are $39 per month plus $8 per month per employee or $99 per month plus $8 per month per employee for their Prime service offering which also includes new comparability profit sharing allowing employers to optimize contributions to certain groups, support for any payroll provider including those outside Guideline’s integrated partners, a dedicated account manager, and priority support allowing employers to receive faster responses.

The following additional non-recurring fees may be charged directly to the plan sponsor:

Service Wind-Down Fee	$250
ACH Chargeback/Reversal Fee	$50
Extraordinary Services Fee	$300/hour

Participant Fees

Guideline does not charge participants a plan administration fee unless the participant ends employment. When participants utilize individual services, a transaction fee will apply, as detailed below.

Individual Participant Fees
The following are services or transactions outside Guideline’s general 401(k) plan administration which will be charged to the participant’s account if the service is requested:

Type of Service	Fee
Distribution or Refund (including Hardship)	$50
Loan Application	$100
Loan Maintenance (annual)	$75/year
Qualified Domestic Relations Order (QDRO)	$500
Check/Stop Payment Fee	$50
Overnight Mail Fee (within U.S.)	$50

Terminated Participant Maintenance Fee
If a participant ends employment, Guideline will charge the participant a monthly maintenance fee of $4, after a 90-day grace period.

What makes Guideline especially interesting is that they currently require employers to pay both their administration and record keeping fees and the advisory fees if they choose to use an advisor.  Since I have always advocated that employers pay the service provider provider fees, I have no issue with this requirement.  In fact, I have often suggested that service provider fees would decrease drastically if there was ever a rule that required them to write a check instead of passing the fees on to participants.  The reason is simple:  Employers are more sensitive to fees if they have to write a check.

Guideline’s incredibly low fee structure and streamlined process not only enable small employers to afford a retirement plan both in terms of time and money, but they also help give participants a chance to avoid the exorbitant fees (often close to 2%) that they otherwise would have incurred.  The Department of Labor provides an example to quantify the effect of just 1% in additional fees:

“Assume that you are an employee with 35 years until retirement and a current 401(k) account balance of $25,000. If returns on investments in your account over the next 35 years average 7 percent and fees and expenses reduce your average returns by 0.5 percent, your account balance will grow to $227,000 at retirement, even if there are no further contributions to your account. If fees and expenses are 1.5 percent, however, your account balance will grow to only $163,000. The 1 percent difference in fees and expenses would reduce your account balance at retirement by 28 percent.”

To elaborate on just how low Guideline’s fee structure is for small businesses, let’s compare them to Employee Fiduciary, another low cost provider who charges $1,500 for annual record keeping and administration services (up to 30 participants and $30 for each additional participant) and 0.08% of plan assets for custodial services provided by MG Trust Company, not including a $1,000 set-up fee ($500 for start-up plans).  According to Guideline co-founder Kevin Busque in this Fireside Chat on May 31, 2018, Guideline handles 4,000 plans (the website states they currently work with 7,750+), $500 million in assets, and $30 million in monthly payroll contributions and has an average plan size of about 12 participants (and an average plan asset size of $125,000) with plans ranging from 2 to 700 participants, so their average annual fee is about $1,152 ($96 * 12) not plus their monthly fee which ranges from $39 to $99.

Employee Fiduciary, unlike Guideline, does not provide 3(16) administration or 3(38) investment fiduciary services, so the total service fees would be significantly more if employers were to add those services.  Granted, unlike Employee Fiduciary, Guideline does not allow for self-directed brokerage accounts, but the segment that Guideline focuses on typically doesn’t require this feature.  Neither company offers defined benefit plans, which are also not typically relevant for small employers.

Guideline’s services also shine light on the futility of just about every retirement plan financial advisor by demonstrating how little value there is to selecting and monitoring a fund line-up, which is the primary reason why advisors get paid – and they almost always base their fee on the size of the account to ensure that it keeps increasing!  Here is what Ted Benna, who is commonly referred to as the “father of the 401(k)” because he created and gained IRS approval of the first 401(k) savings plan, had to say about 401(k) plan financial advisors:

“The advisors are getting paid each time they go through the process with an employer to help pick funds as if they’re doing an original piece of work. There are more than half a million 401(k) plans, so that’s happened over half a million times. The fund menus aren’t that much different. But advisors are getting paid as if they’re doing an original piece of work. That’s just bizarre, extremely inefficient and much too expensive.

First of all, they need to get away from asset-driven compensation and be paid a fee for service, the same as accountants or attorneys, who don’t get paid a percentage of corporate [client] assets. Their role should shift to helping people focus on how to succeed at retiring successfully, not on investment return. Building a smarter investment mix is pretty much of a commodity now. The focus should be on goals: “I want to retire successful. Help me do that.”

So in effect, Guideline is forcing advisors to actually provide value.  First, advisors have to come up with the kind of value proposition that Benna suggests because Guideline has taken over the process of selecting and monitoring plan assets, which, along with providing misleading benchmarking services, is the foundation for most advisors’ value proposition.  To illustrate, I recently had a conversation with an unusually proactive business owner who decided he no longer wanted to pay for the advisor’s 0.35% fee because he didn’t believe the advisor was providing any value.  I say “unusually” because most employers don’t even think about eliminating the advisory fee, but rather just accept it as part of the cost.  The advisor responded by claiming that his fee was standard throughout the industry – and while he was right, even he couldn’t come up with a single example of value to justify the fee.  Unfortunately, few employers have the time, energy, knowledge, and motivation to not only question the advisory fees, but to actually fire the advisor.  Now thanks to Guideline’s approach, employers have no choice but to carefully evaluate the advisory fees in proportion to the value before engaging their services.

Furthermore, even if employers investigate Guideline’s services and decide that Guideline is not the right fit because of services not offered or because they don’t want to cede control of the investment line-up to a 3(38) fiduciary, they will at least begin to understand the ease with which a service provider can develop and monitor a fund line-up at a tiny fraction of the cost of a typical financial advisor.  For that reason, they might begin to question why they are continuing to unnecessarily use their participants’ retirement savings to drastically overpay their advisor for a commoditized service, especially when the advisor is often taking a more limited level of fiduciary responsibility than a 3(38) fiduciary or none at all.

In summary, Guideline is a great provider for any small business that has basic needs not including self-directed brokerage accounts or defined benefit plans, appreciates the value of technology, and truly cares about providing the best possible retirement plan benefits to its employees.  It acts a disruptor because it shifts the paradigm through which we view retirement plans from an opaque model where retirement plan service providers claim to help participants save for retirement and somehow make money in ways they don’t understand to a more honest, transparent, efficient, and cost-effective model that helps participants use technology to their advantage.  It acts as an enabler because it frees participants from the shackles of an outdated retirement system that aims primarily to enrich providers at their expense.

 

 

This chart illustrates exactly why employers overwhelmingly do not seek to understand service provider fees and what they get in return.  Employers simply lack the incentives to control costs or seek the highest value because of their ability to pass on the costs to participants instead of writing a check.

I created this website and drafted this letter to make this process easier for employers and employees:

http://401kprovidersearch.com

http://paulsippil.com/letter-for-participants/

When deciding how to best structure and monitor the retirement plan, employers can benefit by asking themselves:  What if they were building their plan from scratch?  Here are some more specific questions to consider:

1. How should the fund line-up be designed?  Is there an ideal number of funds to have that will maximize participation and minimize confusion?  Do you believe in offering actively managed funds to give participants the opportunity to “beat the market”?  How likely are they to accomplish this goal?  Should participants have access to a self-directed brokerage account so they can each have the ability to choose any fund they want?
2. What steps can be taken to make sure that the participants properly utilize the investment options?  For example, if you have target date funds, are participants using the funds correctly as stand-alone options, or are they choosing other funds in addition to the target date funds?  Are participants mistakenly choosing highly correlated funds falsely thinking that more funds will make their portfolio more diversified?
3. What criteria should you use to choose your service providers such as the custodian, record keeper, administrator, and advisor?  Years of experience?  Number of plans?  Assets under management?  Ability of the representatives to relate and connect with your participants? (this is especially important)  Quality of the website?  Employee and client turnover?  Average employee tenure?  Effective utilization of technology?  Access to a dedicated support specialist instead of an 800 number? (for the record keeper)
4. How much of an issue is fiduciary liability for your business?  What kinds of fiduciary liability exist, and which are most significant?  What steps can you take to protect yourself against fiduciary liability?
5. How should the service fees be structured?  Asset-based?  Flat fee per participant?  Flat fee based on service time?
6. Should the company write a check for the service fees or pass them on to participants?  If the fees are passed on to participants, should they be passed on equally or in proportion to the account balances?
7. How can you best create a retirement plan to motivate, attract, and retain valuable employees?  Should you offer a profit sharing contribution and a match?  If so, what is the best way to design a match?  Should you offer a non-qualified deferred compensation plan in addition to the defined contribution plan that specific benefits key employees?  If so, how should this plan be funded?  Would it make sense to offer a defined benefit plan as well?
8. What is the best way to communicate the benefits and costs to the participants?  E-mail?  Webinar?  Face-to-face group meetings?  Face-to-face one on one meetings?  How much do your employees appreciate the benefit of the retirement plan?  What steps can you take to increase their understanding and appreciation of this benefit?
9. What are the primary factors that affect the ability to retire comfortably?

I have identified this list of over 500 retirement plans throughout the Chicago area that are likely paying excessive compensation out of plan assets.  I say likely rather than definitely because something may have changed since the most recent 5500 form was filed, and I do not know the specific level of services being provided.  However, being an independent registered investment advisor specializing in providing advice with respect to group retirement plans and having reviewed over ten thousand 5500 forms over the past decade, I have become sufficiently familiar with the marketplace to determine what constitutes reasonable provider compensation for a full range of service levels.  Consequently, I can confidently say that many of these plans are still paying excessive compensation even if they are receiving high levels of service because there often still isn’t enough work to do to justify these compensation levels.

Law firms:

Alschuler, Simantz, & Hem

The Law Offices of Jeffery M. Leving, Ltd.

Coghlan Law

Much Shelist

Goodsmith Gregg & Unruh LLP

Chapman Spingola LLP

Barack Ferrazzano Kirschbaum & Nagelberg LLP

McNabola & Associates

O’Neill, McFadden, & Willett LLP

Miller Shakman & Beem LLP

Schuyler Roche & Crisham Attorneys

Power Rogers & Smith LLP

Pedersen & Houpt A Professional Corporation

Donohue, Brown, Mathewson, & Smyth

Levin & Ginsburg

Shaw, Fishman, Glantz, & Towbin, LLC

Deutsch Levy & Engel Chartered

Nyhan Bambrick Kinzie & Lowry PC

Louis F. Caincar, Ltd.

Hiskes, Dillner, O’Donnell, Marovich, & Lapp

Sperling & Slater

Olson & Cepuritis, Ltd.

Storino, Ramello, & Durkin

Levin & Brend PC

Thomas R Nash, PC

Romanucci & Blandin

Sudekum, Cassidy, & Schulruff

Conway & Mrowiec

Blatt, Hasenmiller, Leibsker, & Moore LLC

Matushek Nilles LLC

Daspin and Aument, LLP

Horwitz, Horwitz, and Associates

O’Rourke, Hogan, Fowler, & Dwyer, LLC

Tribler, Orpett, & Meyer

George J Jasinski

Murphy & Hourihane LLC

Dana Crowley & Associates

Patzik, Frank, & Samotny Ltd.

Bell & Anderson LLC

Mulherin, Rehfeldt, & Varchetto

Levin & Brend

Baum Ruffolo and Marzal Ltd

Epstein and Epstein

Schoenberg, Finkel, Newman, & Rosenberg

Righeimer, Martin, & Cinquino

Lavelle Law

Chapman & Spingola LLP

Stein Ray LLP

Barker & Castro

Mcgann and Matesevic Ltd.

McCracken, Walsh, Carlisle, and De Lavan

Edward Jaquays Law Office

Johnson & Bell

Applegate & Thorne-thomsen P C

Stowell & Friedman, Ltd.

Ariano Hardy Nyuli Johnson Richmond & Goettel PC

Lillig & Thorness Ltd.

Inman & Fitzgibbons Ltd

Corboy & Demetrio

Masuda Funai Eifert & Mitchell Ltd

Querrey & Harrow Ltd

Barack Ferrazzano Kirschbaum & Nagelberg Llp

Anesi Ozmon Rodin Novak & Kohen Ltd

Okeefe Lyons & Hynes Llc

Williams Montgomery & John Ltd

Pattishall, Mcauliffe, Newbury, Hilliard, & Geraldson LLP

Klein Thorpe And Jenkins Ltd

Tenney & Bentley Llc

Levenfeld Pearlstein

Wiedner & Mcauliffe Ltd

Donohue Brown Mathewson & Smyth

Beermann LLP

Schuyler Roche & Crisha,  P.C.

Robbins Salomon & Patt Ltd

Hughes Socol Piers Resnick & Dym Ltd

Drane & Freyer Limited

Johnson & Bell Ltd

Eimer Stahl Llp

Pretzel & Stouffer Chartered

Fuchs & Roselli Ltd

Berger Schatz

Figliulo & Silverman P C

Scariano Himes And Petrarca Attorneys At Law Chartered

Hamilton Thies Lorch & Hagnell Llp

Flanagan Bilton

Meltzer Purtill & Stelle

Hoogendoorn & Talbot Llp

Ruff, Freud, Breems & Nelson Ltd.

Speers Reuland & Cibulskis PC

Pugh Jones Johnson & Quandt PC

Hodges Loizzi Eisenhammer Rodick And Kohn

Foran Glennon Palandech & Ponzi PC

Stellato & Schwartz Ltd

Molzahn, Rocco, Reed & Rouse, LLC

Richmond Breslin Llp

Franks Gerkin & Mckenna PC

Cullen Haskins Nicholson & Menchetti PC

Hogan Marren Ltd

Inman & Fitzgibbons Ltd

Dimonte & Lizak

Capron & Avgerinos P C

Glenn Stearns Chapter 13 Trustee

Whitt Law LLC

Hoey & Farina  PC

Scandaglia & Ryan

Scott & Kraus LLC

Heineke & Burke LLC

Bronson & Kahn Llc

Crowley & Lamb

Grund & Leavitt

Walker Wilcox Matousek Llp

 

Non-law firms:

Inland Truck & Van Equipment Co

United Auto Insurance Agency

Omega & Associates

Ralph Weiner & Associates LLC

American Architectural Manufacturers Association

William J Scown Building Co

Couplings Company Inc

Resolute Consulting LLC

All-Tech Decorating Co

Durrie Sales

R Olson Construction Co

K & C  Trucking Co Inc

Sweetener Supply Corp

Kozol Bros Inc

Devon Bank

Access Search

Hoerr Schaudt

Keating of Chicago

Midwest Truck & Auto Parts inc

American Digital Corp

KSO Metalfab

Conway Farms Golf Club

Paragon Marketing Group

Visual Marketing Inc

Enterprise Oil Co

Roman Decorating Products Inc

DBLK Ltd.

Eagle Operating Corp

Dukane IAS

Deutsche Boerse Systems Inc

Taylor Precision Products Inc

Cambium Networks Inc

The Elks Grand Lodge

Rex Worldwide Ltd

Ameda Inc

Quinnox Inc

Care Capital Properties Inc

Sheehan Nagle Hartray Architects

Compact Industries Inc

Wolf Motors of Naperville

Demar Inc

Flack Steel LLC

Fabric Images Inc

Dough Inc

Hopewell School Inc

DKI Services LLC

Industrial Water Treatment Solutions Corp

Red Frog Events LLC

Enviroplus Inc

Omni Commercial Group

Medac Pharma Inc

Interstate Environmental Services

Brolite Products, Inc.

Synegen

Lincoln Clean Energy

Partnership Financial Credit Union

Primary Energy Recycling Holding

CFE Media, LLC

Proyco LLC

Woodrow Development

HBM Engineering Group

Access Credit Union

Isabelli Media Relations

Elobau Sensor Technology

Glentronics

Babbitting Service

KCE Ltd.

Air Movement & Control Association International

Bostrom Corp.

Preferred Window & Door

Plexus Productions LLC

Hancock International Corp.

Home Run Inn

American Academy of Orthopaedic Surgeons

McArdle Ltd.

Indeck Energy Services

Midwest Orthopaedic Consultants

Automatic Appliance Parts Corp

Academy of Nutrition and Dietetics

Drs Nelson & Garry Dental Assoc

Belisle Construction

Blistex

National Tube Supply

Stanley Machining

ABS Graphics

Fuji America Corp

Edgar A Weber & Company

Triangle Package Machinery Co

Great Lakes Plumbing

Putnam Media

Delta Dental Plans Association

Matrex Exhibits

Banner Plumbing Supply Co.

Illiana Financial Credit Union

KWI LLC

Enviroplus

Murnane Specialties

Normandy Construction

Bell Litho

M3 Capital Partners

Ciorba Group

Tripar International

Proactive Worldwide

Westside Mechanical

Total Marketing Associates

CJBS

Walter E Deuchler Associates

Stevens Exhibits & Displays

Kara Co.

National Survey Service

West Side Machine

Pressense Pressure Sensititve Papers

Suburban Mailing Services

Suburban Surgical Care Specialists

Chicago Orthopaedic & Sports Medicine

Feed Control Corp

Haran & Associates

Western Internal Medicine

Herman Seekamp

WM Huber Cabinet Works

Bradish Associates

Intercontinental Parts Inc

American Escrow & Closing Company

Michuda Construction

Telemedia Traninco Holdings LLC

Armil/CFS

Engis Corp.

Lakeside Bank

Alpha Phi International Frat

H-O-H Water Technology

Turbojet Partners

Orren Pickell Building Group

Rogan Corp.

Pekron Consulting

Parkside Pediatrics

Fluid Power Engineering

Able Die Casting

DLA Architects, Ltd.

Nels J Johnson Tree Experts

Proactive Worldwide

Speedy Metals LLC

Chicago Turnite Co, Inc.

The Nurse Source

Netronix Corp

Mcguire Engineers

Ashland Millwork

American Industrial Direct

RGK Associates

Leave it to us Events

Impact Advisors LLC

Featherstone

Microlink Devices

IL & P Enterprises

The Structural Shop

North American Sales Associates

Simon & Simon

Brinshore Development LLC

Carefree Comfort Inc

Gold Coast Motors Cars DBA Perillo BMW Inc

Jorson & Carlson Co.

International Housewares Association

Instrument Associates

Raths, Raths, & Johnson

Degiulio Kitchen Design

Traffic Control & Protection, Inc.

Joseph M. Wiedemann & Sons

SMG Security Systems

Prairie Capital Holdings, Inc.

Marquette Partners

Friedman & Huey Associates

Diversified Financial Management Corp.

Arbor Investment Management, LLC

Dgiovine, Hnilo, Jordan, & Johnson

Kamm Insurance Group

Rand-tec Insurance Agency

Glenstar Asset Management, LLC

MSG Marketing

Perlmutter Investment Company

J & J Motor Service

Reliable Building Systems

Leonard M. Kaplan D.D.S.

Rheumatology Specialists

John C. Koechley, DDS

Thomas K. Stewart and Cheryl A. Stewart DDS

First Delta Group

Pain Care Consultants

Baluchi Medical Group

Candy Mae Candy Company

Advantage Coaching and Training

T.J. Properties

Associated Pathology Consultants

Pientka Plumbing Contractors

Rheumatology Specialists

Rick Levin & Associates

Ampere Electric Services

Nelson J Lehrer, MD

Neurosurgical Professionals

Alley Emergency Care Management, Ltd.

Chams Women’s Health Care

Kloss Distributing Company

Midwest Vacuum, Inc.

Kidney & Hypertension Consultants

Edmund D Tobias DDS

RTM & Associates

Deborah L Beaty DDS

North Suburban Periodontics

Lake County Pediatrics

Lake Anesthesia Associates

John Woods & Associates, Inc

Oral Facial and Implant Specialists

Illinois Orthopaedic & Hand Center

Ampere Electric Services

B & L Automotive Repairs

Lanette Disera DDS

Richmond Electric Co., Inc.

Pacific Coast Marketing

University Anesthesiologists

Lake Book Manufacturing

March Manufacturing

Metal Parts & Equipment

West Central Anesthesiology Group

University Pathologists

Elmhurst Emergency Medical Services

Dupage Valley Anesthesiologists

Fox Valley Orthopaedic Associates

Talcott Internal Medicine

Anesthesiologists, Ltd

Suburban Radiologists

Physician Anesthesia Associates

DS & P Insurance Services

Lakeside Equipment Corporation

Vogue Tyre & Rubber Co

Elmhurst Radiologists

Metro Infectious Disease Consultants

Associated Opthamologists

Vonberg Valve

Hedges Clinic

Bachman Enterprises

Womancare

Fertility Centers of Illinois

Midwest Neoped Associates, Ltd

Dental Health of Wheaton

Elmhurst Anesthesiologists

IPC International Inc

Florida Plastics Intl Inc

Orthopaedic Associates of Chicago, Ltd./DBA  Northwestern Center for

The Mazzetta Company

Halls Complete Rental Service

National Association of Boards of Pharmacy

Elmhurst Medical Associates

Orthopedic & Spine Surgery Associates, Ltd.

Rheumatology Associates

WM. F. Meyer Company

R Lance Robbins DDS

Associated Orthodontists, Ltd

Plibrico Company, LLC

Nadler Golf Car Sales

Fox Valley Family Physicians

Universal Chemical and Coatings

Consumers Direct

W B Olson, Inc.

Dupage Pathology Associates

Lakeside Nephrology, Ltd.

Hand Surgery Associates

Lagrange Women’s Clinic

Suburban Ear Nose & Throat Associates

Kane Anesthesia Associates

Affiliated Steam Equipment Company

Rent Com, Inc

Antarctic Mechanical Services, Inc.Fisher Container Corp

Property Loss Research Bureau

Bingamonn Precision Metal Spinning Corp.

Ad-Park Pediatric Associates

Vegetable Juices Inc.

Drs. Robin & Fretzin

Rosenbaum & Levine MD

University Opthamology Associates, Ltd.

Production Plus

Hochstadter Isaacson Cherny Dumanic & Assoc

South West Industries

Canning Inc.

Wickstrom Auto Group

Arthur J Greene Construction, Co, Inc.

Aurora Air Products

Illinois Retina Associates

Michlin Metals Inc.

Northwest General Surgeons

Associated Laboratory Physicians

West Suburban Neurological Associates

Neumann Co Contractors

Cardiovascular Surgeons

Northwestern Women’s Health Associates

Jay Berwanger

Phoenix Developers LLC

Laboratory & Pathology Diagnostics, LLC

Citation Box and Paper Co

North Arlington Pediatrics

Jon-Don Inc

Willie Washer

Kbkb, Ltd

Wilkens-Anderson Company

Benevolent and Protective Order of Elks of U.S.A.

Trialco

Manjeet Chawla, MD

Frank Burla & Sons Builders

Advanced Oral & Maxillofacial Surgery

Pediatric Specialists of the Northwest

Grayslake Animal Hospital

Avenue Metal Manufacturing Co

David Architectural Metals

Digital Design Corporation

A-L Equipment Co, Inc.

Chorzempa and Ziah DDS

Northwest Womens Consultants

Narain D. Sawlani

Bushnell Inc

Arthur Weiler Inc

Soudan Metals Company

Metropolitan Advanced Radiological Services, Ltd.

Skaja Terrace Funeral Home

West Suburban Family Practice Associates

Evaskus & Herzog

Converting Technology

Leonards Unit Step Company

Sanford L Barr DDS

John Sakash Co., Inc.

Gaby Iron & Metal Co Inc.

Steven J Moravec, DDS

Schaumburg Family Physicians

Suburban Plastic Surgery

Nancy Chao Lichon MD

Em Enterprises

Numark Credit Union

morsen Construction

John M. Damas, DDS

Colonial Dental toup

Janco Supply

Illinois Fibre Specialty Co

Drs Bell, Stromberg, Harris, Nagle, Wiedrich

Midwest Cardiac Consultants

Presence Marketing

Uptown Animal Hospital

Associated Urological

Uptown Animal Hospital

Plum on  Dental Associates

Northwest Dermatology

William E. Woods, MD

Skach Manufacturing Company

Twinplex Manufacturing Co

BK Controls

Northwest Pulmonary Associates

Midwest Fence Corporation

Crawford Material Co

Teamwork Marketing Corp

Adams Machinery Company

Drs. Akers, Stohle, & Borden

Lydon & Associates

Northwest Suburban Medical Associates

Midland Orthopedic Associates

Digi-Trax Corp

Ortigara’s Musicville

House of Cans

Suburban Eye Consultants

Voco Tool & Manufacturing

Kevin Odonoghue MD & Marianne N Odonoghue MD

Associated Radiologists of Joliet

Dundee Animal Hospital

CL Greenslade Sales

Midwest Surgery

Surgery Group

Northwest Eye Clinic Ltd

Randy R Zimmerman MD

Tennenbaum & Anstadt, Ltd. D/B/A Gottlieb Eye Center

Demar

Wellington Radiology Group

Dante Gabriel MD

David P Potts, DDS

Solomon Management Group

American Demolition Corp.

Anesthesia Consultants of Morris LLC

Loyola Paper Co.

Eye Specialists of Illinois

Reed Rigging

Nazareth Academy

Rubinos & Mesia Engineers

G & M Distributors

Medical Center Dental Associates, Ltd.

McKernin Exhibits

Phillip L. Cacioppo, MD

Chicago Pawners & Jewelers

Michael Kowalik DDS

Continental Air Transport Co.

Crawford Steel

Kwasigroch Electric

Physicians Laser and Dermatology Institute of Chicago, LLC

Midwest Cardiac Center

Tfaz Group

XL Screw Corporation

Thomas G. Bleck DDS and Eman J. Alsahlani DMD Ltd.

Superior Super Auto Wash, Inc.

Novas, Dohr, & Coll Ob/Gyn Assoc

Emergency Medicine Risk Management/DBA The Sullivan Group

Engineering Enterprises

Women’s Center for Obstetrics Gynecology & Midwifery

G.E. Mathis Company

DC Vast Inc

PMAutomotive Inc.

Mark A Greenberger M.D.

Patio Food Products

Lake Shore Obstetrics & Gynecology LLC

Oak Mill Medical Associates

North Suburban Periodontics Ltd.

Suburban Pediatrics

Fox Valley Ear Nose & Throat Associates

Borter Heating & Air Conditioning Co.

Compact Industries, Inc.

Mid-States Recycling

Aldon Co Inc.

Thomas J Streitz DDS

American Association of Neurosurgeons

R.L. Perlow Corporation

Hinsdale Anesthesia Assoc Ltd

Suburban Plastic Surgery

The Womens Group of Northwestern

Prime Steel Corporation

Duffy & Kwiatt Dental Associates

Oak Park Allergists

Kloberdanz  Oral Surgery and Dental Implants

Retina Services of Illinois LLC

New York Blower Co.

Northern Products Co.

Zirlin Interiors

Aquion, Inc.

Bellman Melcor LLC

Pioneer Wholesale Meat

Chicago Tag & Label Inc.

Lamp Inc.

Lawrence’s Fisheries, Inc.

Paragon Automation

Klein & Slotten Medical Associates, Inc,

Northwest Radiology Associates

Orchard Group

Syr-Tech Perforating, Inc.

Presssence Pressure Sensitive Papers, Inc.

University Associates in Dentistry, Ltd.

Medical Center Anesthesia

Westmoreland Obstetric & Gynecological Associates

Lake Country Surgeons

Meyer Partners LLC

Kayhan International Limited

Lerman Sweeney & Company LLP

Ward Contracting & Building Restoration

Illinois Orthopedic & Hand Center

Technology Services Group

Lake County Head & Neck Specialists Ltd.

Kirschhoffer Truck Service

University Eye Specialists

Maximum Independent Brokerage LLC

Westbrook Internal Medicine

Gavani and Kanuri MD

Randallwood Radiology

Robin B Blakkolb DDS

Internal Medicine Associates, LLC

Orchard Medical Center

Children’s Health Care, Ltd.

Association for Women’s Health Care

Herlihy Mid-Continent Company

Associated Property Counselors

M & R Electronic Systems Inc.

Pinnacle Advertising & Marketing Group

Genesis Clinical Services

Gerald Mackey D.D.S.

New Age Periodontics/Glen Periodontics

Keith P. Rojek, D.D.S.

Mark A Wojciechowski DDS

Fischl Dental Associates

Engineered Packaging Solutions

Tyler Medical Services

Tower Dental Associates

Ofelia B Ayuste, MD

Chicago Prostate Center

Chicago Anesthesia Associates

Blake Horio MD

Behles Family Dental Care LLC

Barbato & Zbiegien, M.D., S.C.

Anthony R Markiewicz DDS

Allied Anesthesia Associates

Allergy & Asthma Consultants

Excel Occupational Health Clinic

Evaskus & Herzog

Fairview Dental Group

Family Practice Specialist

Mark Allan Berk MD

David R Musich, DDS & Matthew J Busch, DDS

Dean Lodding Smiles

Dentistry for Kids

Denise M Lindley & Associates

Jeffrey M Grimley DDS

Jeffrey M Goldberg Law Offices

Deeke Animal Hospital

James D Rohan DDS

Millennium Endodontics

John Querin Cook MD

John J Perna DDS

Opthamology Partners

Paul L Engen DDS

Paul J Willis DDS & Elliot Abt DDS

Orthopedic Associates of Riverside

Lake Shore Obstretics & Gynecology LLC

Stephens Dentistry

Sharon L. Horton MD

Schweitzer Family Dental

Scheer Surgical

Schaumburg Oral & Maxillofacial Surgery

Rubin Veterinary Services

Ravenswood Dental Group

Triad Radiology & Imaging

Comprehensive Pain Care

Drs. McCullom

ABC Dentistry

Advanced Fertility Center of Chicago

Aesthetic & Clinical Dermatology Associates of Hinsdale

Robert C. Malenius D.D.S.

Moria C Ariano MD

Animal Care Clinic Fox Valley

Greg E Sharon MD DBA Allergy & Asthma Center

Asthma & Allergy Center

Plainfield Pediatric Dentistry Ltd.

Pinski Dermatology & Cosmetic Surgery

Progressive Medical Center

Richard N Gershenzon DDs & Assoc

Midwest Respiratory

Midwest Minimally Invasive Spine Specialists

Michigan Avenue Internists LLC

Michael E Bond DDS

MedHQ LLC

Mechanical Engineering Products Co.

Meadows Dental Group

Mark J Landau DDS

Pulmonary Consultants

Rita J Tamilu-Shea DDS

Illinois Implant Dentistry

Harold J Krinsky DDS

Harold Jaimes MD

Wheaton Pediatrics

Mary Ha DDS

KSA Lighting LLC

Just Rite Acoustics Inc.

John J Pempek Inc.

Heynssens & Grassman Inc.

Healthcare-ID Inc.

Harrison Street Real Estate

Graham Carreras Holdings LLC

Framarx Corp.

Ability

Ad/Solutions Group Inc.

Air Source Products

Americ (The Elks Grand Lodge)

American Overseas Transport

Burns Entertainment & Sports Market

CCM Inc.

Apex Dental Materials

Applied Finance Group

Winters Family Practice

Video Refurbishing Services

Vincor Ltd.

Tsurumi America

Top Hits Inc.

Tool King Inc.

Tidal Construction Services

Thorndale Construction Services

Thermosoft International Corporation

The Women’s Practice LLC

The Stationary Studio LLC

The Sign Place Inc.

The Rubicon Group Limited

Worldbridge Partners Chicago

The Engineering Studio Inc.

Telecom Management Inc.

Tele-Fonika Cable Americas Corp

Synergistic Enterprises Inc.

Travis Inc.

Tovar Snow Professionals Inc.

Sky Road LLC

Skokie Valley Air Control

Skokie Meadows Nursing Centers

Single Path LLC

Simplomatic Manufacturing

SSC Installations

Rock Island Capital LLC

RKA Applied Solutions, Inc.

Redi-Strip Co.

Rail Exchange

Radco Industries, Inc.

Practical Environmental Consultants, Inc.

Porter Lee Corp

Pivot Design

Onshore Networks of Illinois, LLC

Metal Parts & Equipment Co.

Maywood Glass & Mirror

Maller Peterson

Malcolm S Gerald & Associates, Inc.

Machine Solution Providers, Inc.

Quality Restorations

Lindbald Construction Co. of Joliet

Lionheart Critical Power Specialists

Lincoln Way Community Bank

Leeds Auto Sales

Lemko Corporation

Lapmaster International

Kraff Eye Institute

Kleen Air Service Corporation

King Koil Licensing Co Inc.

JLO Metal Products

International Facilities Group

Inrule Technology

Industrial Water Treatment Solutions

Jelmar LLC

Friedrich-Jones Funeral Home

Extent Systems

Elite Wireworks Corp DBA Active Wireworks

Elite Staffing Inc.

Elgin Beverage Co

Elara Energy Services

Designation Inc.

Doering Landscape Co.

Diehl Controls North America

Dere Tire & Auto Inc.

Dan Wolf Motors of Naperville

Cullen-Ehrens Inc DBA CEI Transport

Contemporary Marketing Inc

Consolidated Buying Co LLC

Concrete Reinforcing Steel Institute

Arbon Steel and Service Co

Barton Management

Adams Plastics LP

Abelei Inc

A & N Mortgage Services

National Seed

1st Equity Bank

Scurto Cement

Integrated Project Management Co Inc.

Perfection Spring & Stamping

Hayes Mechanical LLC

Telcom Innovations Group LLC

Orland Toyota

Karl Lambrecht Corp.

American Association of Oral & Maxillofacial Surgeons

ISK Industries

Arpac LP

Institute of Food Technologists

Bar Code Graphics Inc.

First Security & Communications Sales Inc.

Keeley Construction

Edwin Hancock Engineering

Europa Eyewear Corporation

Applications Software Technology

Comet Die & Engraving Co.

Fitz Chem

Rezek, Henry, Meisenheimer, & Gende,

Maron Electric

Fort Dearborn Partners

Hall Technologies

Imperial Crane Services

Mills-Winfield Engineering Sales Inc.

Golan’s Moving & Storage Inc.

The Abrix Group

Vitacolor

Creative Die Mold Corp.

Craftsman Tool & Mold Co.

High Ridge Partners (only has information through 2015)

Stephens Plumbing & Heating Inc.

Plitek LLC

Interpro Translation Solutions

Advanced Data Technologies Inc.

Gallagher Corporation

Nagel Trucking & Materials Inc (Axle Equipment)

Cambium Networks

Palos Sports

Welding Industrial Supply

Oak Lawn Toyota

Motivation Excellence

Admiral Heating & Ventilating, Inc.

Great Lakes Medicaid

Global Material Technologies

BST Pro Mark Inc

C Cretors

International Sanitary Supply Assoc Inc.

RPS Engineering

Elenco Electronics

Reebie Storage & Moving Co. Inc.

Chicago Backflow

WM W Meyer & Sons Inc

Midtronics

American Association of Insurance Services

Action Electric Sales

Digital Check Corp.

Hitzeman Funeral Home

Wickland-Zulawski & Associates

Mid-west Neon Supply Co

The Rubicon Group Limited

The Quarasan Group

Mowery & Schoenfeld LLC

Rico Industries

Mackay & Co.

Knight Partners LLC

Salco Products Inc.

The Cary Co

Thoma Bravo

Antarctic Mechanical Services

The Toms-Price Co

Belman Melcor LLC

Progressive Components International Corp.

ACC Industries

Benetech Inc.

Qualitas Manufacturing, Inc.

Urban Innovations

Focal Point LLC

Keystone Aniline Corp.

Automatic Feeder Co Inc.

Krenzien Krenzien & Associates

The Claro Group LLC

Platt Luggage

Metalloy Co

The Stoelting Co

Robert J. Sheehy & Sons Funeral Home

Chief Enterprises

Executive Construction

Northern Builders

Eckenhoff Saunders Architects

Vorne Industries

North American Signal Co.

Tukaiz LLC

Delta Engineering Plan

Comgraphics

Ultratech Inc.

Ron Tirapelli Ford Inc.

Hartz Construction

La-Co Industries

Continental Electrical Construction

The Allant Group

La Marche Mfg. Co.

Halsey Drug Co., Inc. (now Acura Pharmaceuticals)

Sign Works Inc

Etymotic Research Inc

United Engravers

Channer Corp

B & K Equipment Co, Inc.

Connelly Electric Co

Inland Fastener

STR Partners

Joliet Avionics

Apollo Colors

Superior Exhibits & Design Inc

Evans Food Products Co

Evenhouse & Co PC

TT Technologies Inc

JST Corp

Jennings Realty

Weldstar Company

Thelen Sand & Gravel Inc.

Revere Electric Supply

Meccon Industries

Optimus Inc.

Association for Women’s Health Care Ltd.

Mallof Abruzino & Nash Marketing Inc

Exequity LLP

Olsson Roofing

G & O Thermal Supply Co.

Aztech Engineering

Serac, Inc.

Waterstone Management Group

Harbour Contractors, Inc.

Schuyler Roche PC

The Sidwell Co.

Bowman Barrett & Associates, Inc.

Topel Forman LLC

Iga, Inc.

Mill Specialties Inc

The Pate Co

Food & Paper Supply Co

Schiele Graphics

Kaluzny Bros Inc.

Simpson Technologies Corp.

Star Inc.

Manhard Consulting, Ltd.

FGM Architects Inc

Lipman Hearne Inc

Holabird & Root

Wineberg Solheim Howell & Shain PC

Engis Corp

Casey Products Inc

Comprehensive Marketing, Inc.

Single Source Inc.

Hawk Electronics

J/B Industries

Crane Construction Co Inc

Homewood Disposal Service

Storck USA LP

International Airport Centers LLC

Pasquesi Inc

US Trailer Parts & Supply Inc

Hoffman Transportation

Cougle Commission Co

Voss Belting & Speciality Co., Inc.

Treasury Strategies, Inc.

Christian Communications of Chicagoland

Crestline Denali Capital, LP/Now Resource One

Tallman Equipment Co Inc

Standard Equipment Co

Heritage Wine Cellars Ltd

Chicago Switchboard Co

Cunningham Meyer and Vedrine PC

Lechler Inc & Subsidiaries

National Van Lines

Gregga Jordan Smieszny Inc

Strube Celery & Vegetable Co

Authentify

Stone Design

Ironwood Industries

Zacks Investment Research

Kempler Industries

Institute of Real Estate Management

Carolina Wholesale Office Machine Co Inc (Also known as Arlington Industries)

Outlook Marketing Services

Garveys Office Products Inc

TA Cummings Jr Co Inc

Jamerson & Bauwens Electrical Contractors Inc

Lake Capital Management LLC

Quinlan & Fabish Music Co

Itentive

Resource Management Ent Inc

Illinois Wholesale Cash Register

Belvedere Trading LLC

St. Charles Trading

Gemco Roofing and Bldg Supply

II in One Contractors

Mega Circuit

Anasco

Active Glass Co Inc

Donald Gaddis Co Inc

Forming Concepts

First Environmental Laboratories

Ray Sagan & Sons Inc

Harris Steel

Mcgrath-Colosimo Ltd

K & M Printing Co Inc

Custom Data Processing

Adelphi Enterprises Limited Partnership DBA Bredemann Lexus

First Family, Inc. DBA Bredemann Chevrolet, Inc.

P-K Tool & Manufacturing Co

Garoon

Welch Bros

Computer Projects of IL

Computer Aided Technology, Inc

Berglund Construction

New Metal Crafts

ME Fields

CTM, Ltd.

Leasing Associates of Barrington

National Roofing Contractors Assoc

Corporate Concepts

Arlington Industries

BE Atlas

Fujikawa Johnson Gobel Architects

Edon Construction

Camelot Paper

Quad Plus, LLC

Raco Industrial Corp

Chicago Scenic Studios

Spartanics

Harting, Inc.

Hart Travers & Associates, Inc

Tox-Pressotechnik

Capsonic Group LLC

Royal Management Corp.

Spectra-Tech, Inc.

Ray Sagan & Sons

Haapanen Bros.

AJ Antunes

Bullock Logan & Associates

Bird-X

GDHWD & Eberle, Inc.

The Visual Pak Companies

Interior Alterations

Directions, Inc.

Central Sod Farms

Poli-film America

Gamma Technologies

Komar Screw

Genesis Group

Calumet Carton

Chicago Cutting Die Co

Suburban Door Check & Lock Service Inc

Discount Media Products, LLC

Neuco Inc

Fox Valley Fire & Safety Co, Inc.

Tranzact Technologies

Maddock Douglas

Tyler Lane Construction

Porter Supply Co Inc

Omnibus Productions

Morton Grove Supply

Mah Machine

DM Merchandising

James J Benes & Associates, Inc.

Reliance Orthodontic Products, Inc.

Conway Import Co. Inc.

Essex Electro Engineers

Gallagher Asphalt Corp.

Metalstamp, Inc.

Brandenburg Industrial Service

Henricksen & Co., Inc.

401(k) plans are seen as a competitive benefit to employees that supposedly enhances the compensation package, but the truth is often just the opposite.  As I have explained before, every dollar that employers contribute in the form of matching or profit sharing contributions could have otherwise been paid out as a bonus.  While the tax deferral brought about by forced savings might seem like a good idea, the unnecessarily high fees that most participants incur often outweigh the advantage of the tax deferral.  Furthermore, offering a retirement plan has a litany of compliance requirements, which take time and resources (both financial and non-financial) away from running the business.

But perhaps the most compelling reason has to do with inadequate employer and employee participation (this is the case for most plans I see), as the main advantage of company sponsored plans is the ability to defer significantly more than what could otherwise have been contributed to an IRA, which currently has annual limits of $5,500 plus a $1,000 catch-up contribution for those over 50.  If an employee is only contributing $2,000 annually and the employer puts in another $500, for example, that $2,500 doesn’t even come close to the IRA limit, yet in many cases, the employee could have purchased the same funds available in the company sponsored plan at a lower price because IRAs don’t have record keeping, administration, or custodial fees (low cost index funds are a prime example).  In addition, financial advisors usually get paid from participants’ accounts regardless of whether or not the participant uses the advisors’ services, whereas the only way for an advisor to get paid from an IRA is to come to an agreement with that individual.  If employers are worried that their employees may not make the effort to contribute to an IRA, they can still hire a financial advisor to educate their employees.  In most cases, this solution makes far more sense, but employers rarely take the time to think about why they even have a plan, usually because they are too busy running their business, and the advisors, administrators, and record keepers are too busy extracting money from the participants’ accounts to tell their clients that they aren’t adding enough value to justify keeping the plan.

Granted, in some instances, highly compensated employees will not be able to receive a deduction (or only a partial deduction) for traditional IRA contributions and may not be able to contribute to a Roth IRA due to their income, but they can still save as much as they want in a taxable account.  If they invest in low cost, tax efficient, passively managed funds as they should, then giving up the tax deferral will be far less costly than investing in less tax efficient investments such as actively managed funds.

Some employers may object to terminating the plan because of outstanding loans, but this claim is erroneous due to the fact that employees can simply roll over the outstanding balance into an IRA.  As it states on the IRS website:

“Plan sponsors may require an employee to repay the full outstanding balance of a loan if he or she terminates employment or if the plan is terminated. If the employee is unable to repay the loan, then the employer will treat it as a distribution and report it to the IRS on Form 1099-R. The employee can avoid the immediate income tax consequences by rolling over all or part of the loan’s outstanding balance to an IRA or eligible retirement plan by the due date (including extensions) for filing the Federal income tax return for the year in which the loan is treated as a distribution. This rollover is reported on Form 5498.”

 

 

While this headline seems to suggest where I fall on the Active vs. Passive Debate, I actually I don’t take a side and find the debate woefully incomplete when it comes to thoroughly discussing how to properly construct a fund line-up for group retirement plans.  A more accurate title should be “The Simplicity vs. Complexity Debate” because this dichotomy truly gets at the heart of the question on how employers should set up retirement plans that benefit plan participants rather than solely the service providers.

Let’s start with the ideal number of investment options.  Chris Carosa, author, journalist, investment adviser, and chief contributing editor of Fiduciary News wrote a fantastic three part series to help answer this question.  I can summarize as follows:

1.  Too many choices confuses participants, causing them to split their dollars evenly among several funds, creating a portfolio similar to a low cost index fund, yet much more expensive.
2.  Too many choices adversely affects participation rates and leads to sub-optimal decisions.
3.  Retirement plans ideally should have no more than 10 investment options.
4.  Limited choices gives participants greater satisfaction.

I would also add that I typically see at least 15 investment options in plans I review, and often more.  And in each case, I have seen that most of these investments have a high degree of correlation, which is defined as:

“a statistic that measures the degree to which two securities move in relation to each other.”

Consequently, because participants tend to spread their money out throughout different funds which are often actively managed, likely because they believe that doing so creates greater diversification, they have a false sense of security.  On the contrary, they could actually achieve an extremely similar portfolio with greater diversification and fewer funds (not to mention far lower costs!), as exemplified by the Schwab Total Stock Market Index Fund (SWTSX) which holds 2,423 securities and costs 0.03% and the Schwab International Market Index Fund (SWISX) which holds 948 securities and costs 0.06%.  If participants knew they could spread their money out throughout over 3,000 companies while incurring minimal costs with only two funds, they would likely make different decisions.

From an employer standpoint, simplicity makes sense from a compliance perspective because it’s easier to construct an investment policy statement (a written description of a plan’s investment-related decision-making process) that employers can consistently follow.  I have explained more in a previous post.

Financial advisors thrive on adding additional and unnecessary complexity as well as keeping employers in the dark about simpler, lower cost options because most if not all of their value proposition hinges upon selecting and monitoring the funds that will continue to outperform the market.  Granted, as Chris Carosa has also pointed out,

There you have it. In short, this one paper (Broker Incentives and Mutual Fund Market Segmentation), perhaps not as well read as it should be, almost accidentally seals the deal for the fiduciary standard, exposes the conflict-of-interest created by 12b-1 fees and, dare we say, touches the forbidden third rail of all investment research: it shows – within the direct-sold fund channel – index funds have no inherent advantage over actively managed funds (and suggests past studies may have reached opposite conclusion by over-weighing the impact of broker-sold funds); thus, adding another nail to the coffin in the all-too-often repeated misconception that passive consistently outperforms active.

So yes, lower costs for the funds don’t matter if you are comparing direct sold funds to index funds, but because this same paper “concludes direct-sold mutual funds (including institutional funds) outperform broker-sold mutual funds by 1%”, it is clear that fund costs DO matter if they are sold their brokers.  And yet, the registered investment advisors who recommend a litany of actively managed funds will charge more for the additional work of selecting and monitoring a more complex line-up which has no  inherent advantage over comparable index funds.

Carosa willingly admits, however, in his book “Hey! What’s My Number” that the primary questions that influence an investor’s wealth include:  when to start saving, how much to save, and when to retire – all of which a good behavioral coach can help effectively answer throughout an investor’s lifetime.

He also cites a study from the Center for Retirement Research at Boston College which states:

“Assuming a CRRA (coefficient of relative risk aversion) of 5, the amount required to compensate a household for a retaining a typical portfolio (where 36 percent of assets are invested in equities) rather than switching to an optimal portfolio allocation (where 51 percent of assets are invested in equities), is $5,600, or approximately the additional amount the household would earn if it delayed retirement by one month.  In contrast, when the comparison is between a typical portfolio and an all-stock portfolio, the household is better off by approximately $3,600, or under one month’s salary.  That is, an all-stock portfolio is even more sub-optimal than the typical conservative portfolio.  The key message, however, is that the dollar amounts are small, suggesting that asset allocation is relatively unimportant for the typical risk-averse household.  Even if the household is less risk-averse (CRRA equals 2), the story is similar.  In this case, as shown in Table 10, the optimal portfolio is all in stocks.  The cost of retaining a typical portfolio (57 percent in equities), rather than switching to an optimal portfolio (100 percent in equities), is $25,700, or just over four months’ salary.  As the optimal portfolio is 100 percent in equities, the cost of retaining a typical portfolio relative to an all-stock portfolio is also $25,700.  In short, regardless of the degree of risk aversion, asset allocation is relatively unimportant for the typical household.”

My Value Proposition pages of my website providers a fuller account, but in summary, retirement plans simply need to have a few low cost index funds and no more than 10 funds in total.  Any plan more complicated than what I have stated aims to benefit the service providers at the expense of plan participants.

 

 

 

 

Some attribute this quote to Mark Twain, although no proof exists.  Whoever the source, this person possessed great insight into the human condition.  The retirement plan industry serves as an ideal example.  To explain, I have had thousands of conversations with business owners, chief financial officers, controllers, and human resources directors who oversee their organization’s retirement plans.  In almost all cases, when I raise concerns about the fact that participant service fees have continued to increase without these participants receiving any additional services in return and are completely divorced from the services provided, the responses generally go like this:

1.  We have reviewed everything and we’re fine.
2.  We have reviewed everything and we’re in line with everyone else.
3.  Our advisor takes care of all that.

In spite of me pointing out that I can see years worth of exorbitant service fees shown on their publicly available tax forms, these plan sponsors don’t seem to care.  Even when I make it clear that I am not looking to sell my services to them, but rather simply explain to them how they can put a stop to these unfair service and fee arrangements, they reply that they are not interested in my services.

Here are some observations about human behavior I can now make as a result of these conversations.  People:

1.  Generally do not want to admit they don’t know about information vital to fulfilling their job responsibilities.
2. Assume that if they never heard this information, it must not be true.  Otherwise, they would have already known about it.
3.  Would rather see plan participants lose enormous amounts of money (including their own!) and ignore their fiduciary duties than admit to their co-workers they don’t know something and/or do any extra work.
4.  Value longstanding relationships more than money and are less likely to scrutinize the value of relationships the longer they have been in place and the closer they are (i.e. friends and family members).

The recent fee disclosure rules and fiduciary standard purport to help protect the interests of plan participants.  But as usual, bureaucrats have no understanding of the industry they are controlling regulating and give little thought to the consequences of these mandatory solutions.  Plan sponsors already view the retirement plan as a back burner item because it has no effect on revenue, so they are already looking for any excuse to spend as little time as possible monitoring the retirement plan.  Now that brokers will be considered fiduciaries who have a legal obligation to “act in the best interests of the client”, plan sponsors will be even less likely to scrutinize their offering than before.

Our compulsory public school system (private schools aren’t much different in their philosophy) stresses rigid adherence to centrally imposed guidelines and discourages us from delving deeper into a subject beyond what it requires.  Our system has long taught use to move on to the next subject once we have displayed minimum competency as defined by the state.  These standards don’t require delving deeply into a subject or asking any substantive questions that demonstrate an ability and desire to apply these questions to every day life.  So after years of inculcating this mindset into children, what happens to us as adults?  The retirement plan industry represents a frightening example in which we now have people with little or no financial skills who the state has taught not to ask probing questions overseeing 6.8 trillion of people’s money.  We don’t need more mandates or committees to solve this problem that this kind of thinking has helped to promote.

 

 

 

One of the best ways to get people’s attention is satire, and for this reason, John Oliver did the American public a great service by comically pointing out the insanity of the retirement plan industry.  As of this date, it has nearly 5 million views, so apparently he has reached quite a few people.  It felt refreshing to hear someone with such a large audience echo what I have been speaking and writing about for so long:  the retirement plan industry is a giant ripoff!  I especially like how he shed light on annuities which I have written about in a previous post.  I also like the analogy he made with termites, describing as tiny and barely noticeable much like retirement fees that can eat away at your future.

Now maybe people won’t be intimidated to ask basic questions like:

1.  How do financial advisors get paid?
2.  What do all the job titles in the retirement industry really mean?
3.  Should I be paying for services in my retirement plan that I never use?
4.  How much will all of my service fees cost me over my lifetime?
5.  And what exactly do all of the service fees in my retirement plan really include?

While John Oliver helped stimulate these kinds of questions (not an easy task when communicating with a mass audience), he could have gone further.  For example, he touted the importance of the fiduciary designation, but given the complexity of the fiduciary rule, he could have warned consumers that simply being a fiduciary does not guarantee that advisors will act in the best interests of plan participants as advisors can recommend record keepers like John Hancock – the same provider that Oliver criticized and decided to get rid of because of their service fees – yet still not violate their fiduciary status.  Furthermore, advisors acting in a “fiduciary capacity” can still charge based on a percentage of plan assets, often resulting in advisory fees completely disproportionate to the level of services provided that still create conflicts of interest.

And while he does a good job pointing out the fact that actively managed funds sold through brokers do not consistently outperform the market, it would have been more helpful if he focused on industry’s addiction to asset-based fees and the retirement plan service providers’ collective desire to deliberately make plans more complicated than necessary in order to sell unnecessary additional services.

Maybe John Oliver will read this blog and consult me if he does a follow up program!

 

In the first season of Better Call Saul, Jimmy visits a retirement home and learns that the management company has been systematically and massively overcharging their residents for various items like Kleenex where they have to pay upwards of $8 per box.  He became suspicious when looking at one of the resident’s bills and seeing that it was written in such small print that it was clear the management company didn’t want the residents to understand the details of their scam.  Upon uncovering these misdeeds, Jimmy gathers evidence in order to bring this company to trial where he and his brother Chuck seek $20 million in damages due to racketeering, which is defined as:

“A service that is fraudulently offered to solve a problem, such as for a problem that does not actually exist, that will not be put into effect, or that would not otherwise exist if the racket did not exist.  Conducting a racket is racketeering.  Particularly, the potential problem may be caused by the same party that offers to solve it, although that fact may be concealed, with the specific intent to engender continual patronage for this party.  An archetype is the protection racket, wherein a person or group indicates that they could protect a store from potential damage, damage that the same person or group would otherwise inflict, while the correlation of threat and protection may be more or less deniably veiled, distinguishing it from the more direct act of extortion.”

In the case of the retirement plan industry, it’s more than just one company conducting a racket.  It’s a network of large retirement plan service providers, attorneys, and government regulators who continue to tout the importance of the survival and growth of their industry in order to solve our “retirement crisis” that they have all played a major role in creating so they can further their own careers.  Similarly, they all recently agreed on the increased “transparency” that would be brought about by a “fee disclosure” law that not surprisingly turned out to be so convoluted that nobody has been able to fully understand what was disclosed nor has anyone been able to understand what services they are actually paying for or if these service fees are reasonable in light of the services they are using.  If it was clear that retirement plan advisors get paid comparable to brain surgeons, perhaps a light bulb would go on in the heads of business owners and executives that might motivate them to ask this one basic question:  “How much money in HARD DOLLARS have retirement plan participants been paying for each service every year?”  Shockingly, many of these uninformed plan sponsors include law firms, banks, and accounting firms – the very service professionals we rely on to give us advice!

There have been several programs put on by NPR, Bloomberg TV News, 60 Minutes, and PBS Frontline attempting to expose how the retirement plan industry operates.  However, none of them have had any effect, likely because even these programs haven’t delved deeply enough into how intertwined each of the industry players truly are.  Until enough people are able to peel back all the layers and become outraged at what is happening to our money, nothing of any significance will change.

 

Anyone familiar with my blog and my practice should be well aware that although I make a living providing financial advice with respect to employer-provided retirement plans, I am no fan of them to say the least.  So one would think that I would agree with any article that similarly espouses my disdain for 401(k) plans.  In this particular case, however, one would be wrong.  In fact, this article has made me now do something I never thought I would do:  Defend 401(k) plans – or at least separate legitimate criticisms from criticisms that are either false, incomplete, or just don’t make any sense.  Does this mean I no longer believe the industry is a corrupt racket that needs to be put out of its misery and that 401(k) plans should be abolished?  Does this mean I’m pushing 401(k) plans because I make more money if people contribute more? (I don’t make more money because I charge flat fees based on the work I do that are not asset-based)  Of course not.  it’s just that when I saw an article like this, I felt compelled to write a response for people who formed an opinion on 401(k) plans based on this article without doing any further research.  Here is a breakdown of each point:

1. You can be wiped out overnight.

A report on CBS’s 60 Minutes TV show asked of 401(k)s, “What kind of retirement plan allows millions of people to lose 30-50 percent of their life savings just as they near retirement?” Good question. Unlike other investments that are protected from losses, your 401(k) rises and falls with the stock market where you have absolutely no control. Retirement planners will tell you the market averages 8-11 percent returns per year. That may have been true last century, but this century has seen that turned into a fiction. From 2000 to 2015, the market was up just 8.4 percent total when adjusted for inflation, or 0.56 percent per year, and that was after a substantial market rally. Do you want to live your ideal life only if the market cooperates?

The idea that one can lose money in the stock market is no secret.  Of course the market is subject to risk, but the author is only referring to market risk, yet there are many other types of risks to consider such as inflation risk, interest rate risk, credit risk, taxability risk, call risk, liquidity risk, reinvestment risk, social/political/legislative risk, currency/exchange rate risk, and business risk.  Does anyone really believe that they have control over any of these types of risks either?  Is “having control” necessarily better? Yes, the market has not fared well over this recent 15 year period, but cherry-picking one particularly bad time period is hardly evidence to change your entire investment philosophy.  If so, Warren Buffett wouldn’t have said this in one of his annual letters to Berkshire shareholders, dated February 28, 2014: “If “investors” frenetically bought and sold farmland to each other, neither the yields or prices of their crops would be increased.  The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties. Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions.  The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit.  So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm. My advice to the trustee couldn’t be more simple:  Put 10% of the cash in short-term government bonds and 90% in a very low-cost S & P 500 index fund (I suggest Vanguard’s).  I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.”

2. Administrative Fees and the Tyranny of Compounding Costs

The toll taken by 401(k) and associated mutual fund fees is staggering, and can eat up more than half your gains. With 401(k)s, there are usually more than a dozen undisclosed fees: legal fees, trustee fees, transaction fees, stewardship fees, bookkeeping fees, finder fees and more. But that’s just the beginning. The mutual funds inside 401(k)s often take a 2 percent fee off the top. If a fund is up 7 percent for the year, they take 2 percent and you get 5 percent. It sounds like you’re getting more, right? At first, yes, but in the end the mutual fund wins. As Jack Bogle, the founder of Vanguard explains it, “What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compound costs.” If you contribute $5,000 per year, from 25 years old to 65, and the fund goes up 7 percent every year, your money would turn into around $1,143,000. Yet, you’d only get to keep $669,400, or less than 60 percent. That’s because 7 percent compounding returns hundreds of thousands more than a 5 percent compounding return, and none of it goes to you. The 2 percent fee cuts the return exponentially. In the example above, by the time you turn 75 the mutual fund may have taken two-thirds of your gains. Bogle puts it like this, “Do you really want to invest in a system where you put up 100 percent of the capital, you take 100 percent of the risk, and you get 30 percent of the return?”

While there have been no more vocal critics about 401(k) plan fees than me, the statement that “The mutual funds inside 401(k)s often take a 2 percent fee off the top” is flat out wrong.  To illustrate, according to The Investment Company Institute: “In 2013, 401(k) plan participants who invested in equity mutual funds paid an average expense ratio of 0.58 percent, down from 0.63 percent in 2012. Similarly, expense ratios that 401(k) plan participants paid for investing in hybrid mutual funds fell from 0.60 percent in 2012 to 0.58 percent in 2013. The average expense ratio 401(k) plan participants incurred for investing in bond mutual funds dropped from 0.50 percent in 2012 to 0.48 percent in 2013. Participants in 401(k) plans tend to pay lower fees than fund investors overall. The 0.58 percent paid by 401(k) investors in equity funds is lower than the expenses paid by all equity fund investors (0.74 percent) and less than half the simple average expense ratio on equity funds offered for sale in the United States (1.37 percent) (see the figure below for more detail). The experience of hybrid and bond fund investors is similar.” Plans with very little assets will likely have “all-in” expenses of 2 percent or more, but this figure also includes record keeping, administration, custodial, and broker/advisory fees.

3. There’s no cash flow for better opportunities.

The theory behind 401(k)s is you keep putting money away, where you can’t easily touch it without penalty for 30 years, and it will compound into enough to retire on. We’ve seen why you should be suspicious of that story.  Compounding charts don’t look the same at 0.56 percent annual returns. But here’s the other problem.  Money left to compound unpredictably for 30 years is stagnant money.  There’s no cash flow ready to direct to today’s best uses.  Instead, it’s sitting still inside one 30-year bet, while newer, better opportunities may be passing you by.

Not having ready access to money set aside for retirement is a legitimate criticism, so there is nothing wrong with supplementing your retirement outside of your company’s 401(k) plan in additional to making contributions to the plan.  However, just because the market is unpredictable doesn’t mean the money is stagnant.  The word “stagnant” means inactive or showing no activity while the word “unpredictable” means uncertain.  So whether or not money will compound unpredictably has nothing to do with whether or not money will be stagnant. It is also not clear if other opportunities are necessarily better since this question can depend on a variety of factors such as what these opportunities are, your cash flow situation, your current income, your age, whether or not your 401(k) plan has a match, and what your 401(k) investment options and expenses are.

4. Lack of liquidity when you need it most.

Money in a 401(k) is tied up with penalties for early withdrawal unless you know how to safely navigate obscure IRS codes. This means you can’t spend or invest your money to enrich your life without great difficulty and/or taking a big financial hit. The only exception allows you to borrow a limited amount of money from your 401(k) if you promise to pay it back. This automatically leads to double taxation and a slew of other negatives, the worst being if you lose your job or your income dries up, the deal changes and you must repay the loan within 60 days. Not even break-your-thumb loan sharks are that cruel.

Lack of liquidity and the double taxation of loans are definitely issues with 401(k) plans, so I won’t argue that point, but the statement “The only exception allows you to borrow a limited amount of money from your 401(k) if you promise to pay it back” is incorrect.  A simple Google search for “401(k) withdrawal exceptions” will provide evidence to refute this claim by showing many other examples of penalty-free withdrawals that you don’t have to promise to pay back.

5. Lack of knowledge encourages unconscious investing.

With 401(k)s, I’ve seen environmentalists who are unknowingly invested in big oil, and anti-smoking advocates invested in big tobacco. Simply put, 401(k)s teach people to be unconscious while investing. Think about it, how much do you really know about your 401(k)? Do you know the funds in which you’re invested? Do you know the details of the companies inside those funds? Do you know the fund manager’s philosophy, history, and performance?  Probably not, How can you expect to gain a return from something that you know so little about? And how can this be called investing? It’s not investing, it’s gambling.

Yes, I’m sure it’s true that many people do not know the 401(k) funds they’re invested in, but why wouldn’t this also be true to any investment outside of their 401(k) as well?  Do people necessarily know any more about the details of insurance and annuities they buy?  If not, would it be better for people to just keep all of their money in cash and never invest in anything? I’m not arguing that it isn’t a good idea to understand the details of your investments.  I just don’t understand why 401(k)s should be singled out any more than any other investment.

6. Fear of taxes leads to underutilization.

401(k)s are tax-deferred, meaning you avoid paying taxes today by committing to paying them later. But taxes are historically low compared to the days of 50, 60, or even 90 percent marginal rates of the past and chances are, with record national debt, that taxes are going up. If you don’t like paying taxes today, why would you want to pay more taxes in the future? The tax deferral aspect of the 401(k), which is touted as a great boon, is actually a primary factor contributing to its underutilization. When the time finally comes to enjoy or live off the money, retirees are incentivized to let the money sit for fear of triggering burdensome tax consequences.

Has the author of this article never heard of a Roth 401(k) which is funded with after-tax dollars meaning the qualified withdrawals are income tax free?  “No, of course this does not mean that a Roth 401(k) serves as a comprehensive financial solution, but if you are going to criticize 401(k) plans, you cannot ignore the fact that this is an option in more plans now than in years past.  Chris Carosa’s thorough and objective article about the debate over the tax advantages of 401(k) plans is far more informative, especially because it is not a completely pro 401(k) article.”  I would highly recommend it to anyone who is genuinely interested in hearing a wide range of informed opinions on the subject.

7. Higher tax brackets upon withdrawal.

It’s ironic that people anticipate that they’ll have healthy returns on their qualified plan while at the same time figuring they’ll be in a lower tax bracket at retirement. If you have achieved any measure of success, you should actually be in a higher tax bracket at retirement. Most advisors, however, assume the opposite. Even worse, those higher tax brackets are likely to be even higher and more daunting in the future.

Again, why not mention the fact that Roth 401(k)s do not burden participants with taxable withdrawals and that more financial professionals and publications are recommending utilizing this option?

8. No exit strategy.

Early withdrawal penalties, over-the-top borrowing rules, daunting taxes, these are all incentives never to touch the money, ever. Getting into a 401(k) seems simple enough. But how are you going to get your money out of it?

See above

9. 401(k)s are easy targets for estate taxes.

Frankly, 401(k)s are sitting ducks for predatory estate taxes. Since there’s no clear exit strategy without major penalties or taxes,  at the end of a person’s lifetime their 401(k)s often end up being a pile of cash that looks very tempting to the government. When it is passed on to the next generation, it’s likely not only hit by the income tax, but the estate tax as well.

This is true, but does not mention the fact that few people will ever pay any estate taxes based on the federal and state estate tax exemptions which have increased significantly.  Yes, we don’t know what estate taxes will be 30 or 40 years from now, but it is nonetheless important to point out that most people have been and are still not subject to estate taxes, especially given that the current average 401(k) balances for people 55 and over is still only about $150,000.

10. The government owns your 401(k) and can change the rules at will.

You may be surprised to learn this, but your 401(k) does not even technically belong to you. Read the fine print and you will find “FBO” (For Benefit Of). The tax code makes it technically owned by the government, but provided for your benefit. Judging from world history, 401(k)s could be in great jeopardy. Other countries have raided private retirement plans to fund the government. Argentina did it in 2008, Hungary did it in 2010 and Ireland in 2011. Similar pension raids occurred in Poland and France. Could it happen in America? Well, during the last recession, Congress invited an expert to give testimony on confiscating 401(k)s and turning them into a public retirement plan like Social Security. It only takes one economic crisis before you retire for possible rule changes or confiscation of your 401(k).

I have read similar articles and would never assume the government is out to protect us.  Governments have committed far worse crimes than stealing people’s retirement money, so I would not be surprised if our government did this or at least forced some of our 401(k) investments to be in U.S. Treasury bonds.  Of course this could happen to IRAs as well. But what the author also doesn’t mention is that there is no reason why our same “benevolent” government won’t also tax life insurance and annuity cash values.

11. Turmoil in retirement.

When it comes time to withdraw money in retirement, maybe you can stomach the taxes, but can you stomach the market swings? Suppose you’ve projected to withdraw 6 percent a year, based on an average annual return of 8 percent. What will you do when the market is volatile? If your fund is down 10 percent one year, any withdrawal is tapping into your principal. At that point, your only choices are start withdrawing principal, or leave the money alone until your account is up again. Try sleeping at night when your income is at the complete mercy of the markets.

There are multiple ways to withdraw money during retirement, and a strategy that works for one person may not work as well for another since the best strategy will depend on the facts and circumstances of the situation.  But to imply that none of your money (or at least very little) should be invested in the market at all (the market is volatile whether it’s in an IRA, brokerage account, or 401(k) plan) simply because the market is volatile is not intended to actually teach anyone anything, but to convince people to just buy life insurance and commission-based annuities.  David Loeper’s article entitled “How Much is that Guarantee in the Window?” does an excellent job analyzing the costs of guaranteed income and exhaustively analyzing if the costs outweigh the benefits.  In other words, it is meant to educate and make people smarter.   Here are some highlights: Out of 1,000 random lifetimes with simulated random returns even more extreme than have been historically observed, in 997 of the outcomes the annuity had a negative relative value to the simple balanced portfolio. There was a 90% chance the annuity guarantee would cost the investor more than $149,000 (about 1.5 times the initial investment) and a 75% chance it would cost more than $243,000. Does this sound “quite valuable” to you? Think about the other factors on top of this. The cash flows we modeled for spendable income were net after taxes and fees versus the annuity that would likely have some portion of the payment being taxed at ordinary income rates. The annuity has zero liquidity where the balanced portfolio offered flexibility to adjust future income withdrawals if there was an unexpected immediate cash need. Of course, we are also assuming the insurance company financially survives a Great Depression environment and can honor its promise to pay.

12. Lost without a comprehensive plan.

I’ve witnessed many people whose finances are in shambles, yet who continue to contribute diligently to their 401(k) plans. It’s like someone with a slit wrist tending to a scraped knee.  You need a macroeconomic, big-picture plan that identifies, prioritizes and manages all pieces of your financial puzzle in harmony with each other. You don’t need a general, one-size-fits-all plan that’s sold to everyone. I don’t understand how having a “big-picture” plan and a 401(k) plan are mutually exclusive. Can’t a “big-picture” 401(k) plan include analyzing the costs and benefits of a 401(k) plan (including the value of the 401(k) match which was never mentioned in this article) to determine how much, if anything, should be invested?

13. Neglect of stewardship and responsibility.

401(k) plans encourage people to give up responsibility for their investment decisions. They believe they can just throw enough money at the “experts” and, somehow, 30 years later, they’ll end up with a lot of money. Then when things don’t turn out that way, they blame others. A true financial plan requires stewardship and responsibility. In short, saving for retirement is wise and prudent. But other investment philosophies, products and strategies can meet your financial objectives much more quickly and safely than a 401(k). Investing for cash flow, or investing directly in a business, or Cash Flow Banking, where you become your own “bank,” could be smarter moves. Even paying off a high interest rate loan can be a smarter move than contributing to your 401(k). Whatever you choose, I urge you to do it as a conscious investor. I suggest that you don’t swallow Wall Street’s promises blindly, and look to those who tell the whole truth about your financial options.

Again, while I don’t mean to imply that investing in a brokerage account or IRA poses the same issue, it is important to note that the same principles of investing still apply.  Also, does this mean that any money invested in the market necessarily ignores stewardship and responsibility? I agree that paying off a high interest rate loan can definitely be a wiser course of action than investing in a 401(k) plan, especially because so many are loaded with such significant and unnecessary expense that erode people’s returns. As for “Cash Flow Banking”, why not just call it what it is?:  Whole Life Insurance.  In fact, if the title of the article were more honest, it should be called:  Why You Should Buy Life Insurance and Commission-based Annuity Products Instead of Investing in your 401(k) Plan.  Now that would at least be an article where I know what the agenda is.

My point here is not that there is necessarily anything wrong with whole life insurance or annuities.  I’m sure there are many ways in which whole life insurance or annuities can fit well into a financial plan in some circumstances.  I don’t believe they are necessarily a worse alternative than 401(k) plans (in case one gets the impression that I am “pro-401(k) plan and anti-life insurance).  And I also want to stress that it’s not always best to always blindly max out your 401(k) for all of the reasons I have written about on my website and blog.  But if you represent yourself as a “financial advisor” to your clients when you cannot legally provide advice without telling your clients they can buy the same annuities without the commissions or surrender charges or that there are blogs like this that are actually meant to help people make more informed decisions because they expose conflicts of interest while 100% of your compensation comes from life insurance and commission-based annuities is dishonest.  Why not just call yourself a life insurance and annuity salesman and tell all of your clients that you can’t provide financial advice, but if they were to use another professional acting in the capacity of a registered investment advisor and fiduciary, then they could receive financial advice?  What’s wrong with laying out all of the alternatives to your clients so they can make informed decisions?  There’s no shame in that.  Isn’t that the whole reason why they seek out financial professionals in the first place?  Butchers don’t call themselves dieticians.  They sell meat while not pretending to sell anything else and people are happy to buy it.  The problem is when people mistake their butcher for a dietician.

Another analogy is the proper labeling of our food.  As consumers, it is best for us to know all of the ingredients in our food, especially if we are allergic to certain foods.  So shouldn’t we demand the same rigorous standards for labeling the services of financial professionals?

I understand there is meaningful debate over what type of advisor compensation model is best for the client, and I agree that when ideas are subjected to the public process of critical exchange, then we all learn something.  But at the very least, clients should understand that when someone makes all of their money from life insurance and commission-based annuities and cannot legally provide advice, they are more like butchers than dieticians.  If clients did understand, I suspect many of these “advisors” would either go out of business or have to change their way of doing business to more honestly and completely reflect how they make money.  Maybe doctors could start doing that too.